After being seen as a popular candidate for the next Fed chairman, Federal Reserve Chairman Christopher Waller again called this week for immediate interest rate cuts and explicitly supported the launch of a relaxation cycle at the Fed’s September meeting.
According to Reuters, on August 29 local time, Waller said in a speech at the Miami Economic Club of the United States that he supports the Federal Reserve to cut interest rates by 25 basis points at the next monetary policy meeting on September 16-17, and expects that interest rate cuts may continue in the next three to six months.
Federal Reserve Governor Christopher Waller
Waller pointed out that the underlying inflation rate in the United States is close to the Federal Reserve's long-term target of 2%, and market inflation expectations are solid, but the possibility of weakness in the labor market has increased. He believes that proper risk management requires the Fed to take immediate action to cut interest rates.
But at the same time, Waller believes that despite the pressure to reduce interest rates, there is no need for a one-off major rate reduction at the September meeting, but he adds that if the August non-agricultural employment report released next week shows that the economy is markedly weak and inflation is still under control, his position may be adjusted as a result: “Based on what is known today, I support a small rate reduction of 25 basis points in September.”
Regarding the future policy path, Waller stressed that more rate cuts are expected over the next three to six months, depending on the pace of economic data. The rate cuts could come in the form of multiple or several pauses in a row. He noted that the neutral rate is around 3%, significantly lower than the current target range of 4.25% to 4.50%. He explained that the discussion of the policy path beyond September is to send a signal to the market that the Fed will not "fall behind the curve".
In addition, Waller specifically mentioned that price pressure caused by recent tariffs is expected to peak at the end of this year or next year, emphasizing that such effects are temporary. He called on the Federal Reserve to "ignore the short-term noise of tariffs" when making decisions and focus on responding to pressure on employment and economic growth.
At the FOMC meeting in late July, Mr. Waller, a longtime FOMC voting power, and another voting member, Michelle Bowman, opposed keeping interest rates unchanged in favor of a 25-basis point cut, a "rare divergence" that Reuters described as underscoring differing judgments within the Fed on tariffs and the economic outlook.
It’s worth noting that both Walker and Bowman are appointed by Trump, and Trump has recently repeatedly criticized the Fed’s existing board of directors and hinted “to change people,” a move widely viewed as paving the way for future Fed president candidates.
On August 22, local time, at the annual meeting of the central bank of Jackson Hall, Federal Reserve Chairman Jerome Powell pointed out that the U.S. economy faces the risk of two categories of competition, on the one hand, inflation may worsen and need to raise interest rates; on the other hand, the labor market weakened, may require interest rates.
While Mr. Powell spent much of his speech emphasising the build-up of labour market risks, he was more concerned about the weakness of the economy than the continued rise in inflation. He said "shifts in the balance of risks could alter our policy stance", meaning the door was officially open for a rate cut as soon as September.
Market data also provided a basis for interest rate cuts. Reuters on August 1 that non-agricultural employment growth in the U.S. was significantly lower than expected in July, with only 7,3 thousand new jobs added in the month, and the previous two months data was reduced to a total of 25,8 thousand, showing worsening labour market conditions, while unemployment rates rose to 4.2 percent. The Wall Street Journal reporter Nick Timiraos commented that the decline in non-agricultural employment opened the door to the rate cuts in September, although inflation is still concerned.